How gilt coupons are taxed

A gilt's coupon is savings income paid gross and taxed at the holder's marginal rate after the savings allowances, so this guide walks from the raw coupon to the net income and the net redemption yield, and then to the wrappers that can shelter the income altogether.

What a coupon is, and how it is paid

A conventional gilt pays a fixed coupon, set when the gilt is issued, in two half-yearly instalments. The coupon is quoted per £100 of nominal: a 4.00 per cent gilt pays £4.00 a year on every £100 of nominal, in two payments of £2.00. It is paid gross, which means no tax is deducted before the money reaches the holder, so the whole coupon arrives and the tax, where any is due, is worked out afterwards.

The coupon is the gilt's income. It is distinct from the return that comes from buying a gilt below par and being repaid £100 at maturity, which is capital rather than income, and the two are taxed differently. This guide follows the income side — the coupon — from what it pays to what it keeps.

Coupon income is savings income

For a UK-resident individual a gilt's coupon is savings income, taxed at the marginal savings rate after the personal allowance and the savings allowances have been applied. Checked against GOV.UK and HMRC for the 2025/26 tax year, the savings rates are 20 per cent at the basic rate, 40 per cent at the higher rate and 45 per cent at the additional rate, and they have been at those levels since April 2017. The UK tax year runs from 6 April to 5 April, so the date a coupon is paid decides which year it belongs to.

Two allowances sit in front of the rate. The personal savings allowance shelters the first slice of savings income — £1,000 at the basic rate, £500 at the higher rate and nothing at the additional rate — and the starting rate for savings can shelter up to a further £5,000 when other taxable income is low enough. Both cover all of a person's savings income, not only gilt coupons, so a holding's coupons share them with any other interest.

From coupon to net income

The gilt lists carry a net income (20%) column: the coupon income per £100 after 20 per cent basic-rate income tax. On a 4.00 per cent gilt that is £3.20 per £100, the £4.00 coupon less £0.80 of tax. It is a starting point rather than a final figure, because it applies the basic rate and does not assume any allowance. A reader at the higher or additional rate works the same arithmetic at their own rate, and the allowance shelters the first slice before the rate applies.

The net income figure is the coupon after the band's rate, before the allowance. A reader adds the allowance back beyond that: at the basic rate the first £1,000 of coupons is sheltered, at the higher rate the first £500, and at the additional rate none. The coupon itself never changes; only the rate and the allowance do.

From net income to net redemption yield

The net income (20%) figure is per £100 of nominal; the net redemption yield folds the tax into the yield itself. The gross yield is the annualised return of holding a gilt to maturity before tax; the net redemption yield is the same return after income tax on the coupons, solved on the same compounding convention so the only difference between the two columns is the tax. Because it taxes the coupon rather than the whole return, a gilt that delivers much of its return as capital keeps a net yield close to its gross yield.

The capital side of a gilt is exempt from capital gains tax for individuals, so the net redemption yield never deducts a capital gains charge: there is none. It deducts income tax on the coupons, and that is the whole of its tax adjustment. A reader comparing gilts on net yields is comparing what their coupons keep, not what their capital gains would be taxed.

The accrued income scheme

Because coupons are paid in arrears, a buyer part-way through a coupon period pays the seller the accrued interest that has built up, and the next coupon repays the buyer for the slice they held. The accrued income scheme adjusts taxable interest for that: the accrued interest paid on a purchase reduces the taxable gilt interest, and the accrued interest received on a sale adds to it. The figure that goes on a return is therefore the coupon adjusted for accrued interest, and the site's report applies exactly that treatment.

Wrappers that shelter the income

A gilt held inside an ISA pays its coupons free of UK income tax, so the whole coupon is kept and the net redemption yield inside the wrapper matches the gross yield. A SIPP also shelters the coupons while the gilt is held, but income drawn from a pension is taxed on the way out, so the shelter there is a deferral rather than an exemption. Since gilts are already exempt from capital gains tax, the shelter a wrapper gives a gilt is on income, not on gains.

The post-tax yield page shows the net income and net redemption yield at a range of constant rates, so a taxable holding's after-tax figures can be read at a chosen band; the conventional gilts list carries the gross coupon, the gross yield and the income per £100 the net figures are built from. Read together, they take a reader from the raw coupon to what it keeps, inside a wrapper or outside it.

Background, not advice

This guide explains how gilt coupons are taxed; it is general background, not investment, tax or legal advice for any reader's circumstances, and it is not a substitute for professional tax advice. The rates and allowances are stated for the 2025/26 UK tax year and come from GOV.UK and HMRC, and every illustrative figure states its inputs. GOV.UK, HMRC and the Debt Management Office are the primary sources for a real tax rule, coupon or yield, which change from year to year.